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Where Does Nike’s Valuation Stand ahead of Q4 Results?

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Change in valuation since Q3 results

Nike’s (NKE) 12-month forward PE ratio has declined 2.2% since the company announced its results for the third quarter of fiscal 2019, which ended on February 28, in March. Nike’s third-quarter adjusted EPS exceeded analysts’ expectations, while its revenue was in line with the forecast. Nike disappointed investors by issuing soft revenue guidance for the fourth quarter of fiscal 2019. As of June 24, Nike was trading at a 12-month forward PE of 28.1x.

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Valuation of peers

Peers Lululemon (LULU) and Under Armour (UAA) were trading at a higher PE of 36.8x and 60.9x, respectively, than Nike as of June 24. Skechers (SKX) and Columbia Sportswear (COLM) were trading at lower PEs of 14.2x and 20.7x, respectively, compared to Nike.

Analysts expect Nike’s revenue to rise 7.4% to $39.1 billion in fiscal 2019, which ended on May 31. Analysts currently forecast Nike’s fiscal 2020 revenue to grow 8.1% to $42.3 billion. Analysts expect Nike’s adjusted EPS to rise 6.3% to $2.54 in fiscal 2019 and increase 18.5% to $3.01 in fiscal 2020.

Nike is focused on the innovation of new products, especially with the intention of expanding rapidly in the women’s apparel and footwear space. In March, Nike announced that it would launch more than 40 new styles of sports bras. Earlier this year, Nike launched its first line of yoga apparel to compete with the likes of Lululemon.

Nike is also pursuing further growth in international markets. The company is investing in digital capabilities to attract more customers and boost its e-commerce sales.

Nike’s upcoming results for the fourth quarter of fiscal 2019 on June 27 and its guidance will likely influence its forward valuation multiple. Analysts expect Nike’s adjusted EPS to fall 4.3% to $0.66 in the fourth quarter as a 3.8% rise in revenue is expected to be more than offset by higher expenses associated with the company’s strategic plans.

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